EDI, which stands for electronic data interchange, is the intercompany communication of business documents in a standard format. The simple definition of EDI is a standard electronic format that replaces paper-based documents such as purchase orders or invoices. By automating paper-based transactions, organizations can save time and eliminate costly errors caused by manual processing.
In EDI transactions, information moves directly from a computer application in one organization to a computer application in another. EDI standards define the location and order of information in a document format. With this automated capability, data can be shared rapidly instead of over the hours, days or weeks required when using paper documents or other methods.
Today, industries use EDI integration to share a range of document types — from purchase orders to invoices to requests for quotations to loan applications and more. In most instances, these organizations are trading partners that exchange goods and services frequently as part of their supply chains and business-to-business (B2B) networks.
How EDI works
All EDI transactions get defined by EDI message standards. It is vital to have proper governance processes for data quality. When information is missing or in the wrong place, the EDI document might not be processed correctly.
Standards are the basis of EDI conversations.¹ Several organizations define the EDI message standards, including ODETTE, TRADACOMS, GS1, Peppol and the Accredited Standard Committee X12 (ASC X12).
In general, there are two basic types of EDI transmission:
Point-to-point or direct connections: Two computers or systems connect with no intermediary over the internet, generally with secure protocols.
Value-added network (VAN): A third-party network manages data transmission, generally with a mail boxing paradigm.
EDI internet transmission protocols include Secure File Transfer Protocol (SFTP), Applicability Statement 2 or AS2, an HTTPS-based protocol, Simple Object Access Protocol (SOAP) and others. EDI data elements include items such as sender ID and receiver ID. Data segments combine two or more related elements to give them greater meaning. For example, FNAME and LNAME can combine to form CUSTOMERNAME. Envelopes structure different types of data and carry the sender and receiver address information. EDI document flow or message flow describes the movement of EDI messages to various inbound and outbound addresses and departments to execute a business process or transaction.² Metalanguages such as Extensible Markup Language (XML) or JavaScript Object Notation (JSON) complement rather than replace EDI. Companies must be ready to handle an ever-increasing number of document formats and transmission options. One global manufacturer routinely exchanges about 55 different document types with nearly 2,000 partners.
“As many as 20% of our B2B transactions were producing an error before we began using IBM Supply Chain Business Network. We have fewer errors now — for example, we used to have issues with transfer orders because a client would submit a wrong code, which was painful for our client service team. It happens probably 80% less now because all of that used to be done manually.” Read what other EDI managers tell IDC about how they drive strategic value with IBM Sterling Supply Chain Business Network.
Benefits of EDI
EDI transactions are essential to B2B processes and continue to be the preferred means to exchange documents and transactions between businesses both small and large.
There are five key business benefits that EDI technology delivers through automation and B2B integration:
EDI technology saves time and money through automation of a process previously manually executed with paper documents. EDI solutions improve efficiency and productivity because more business documents are shared and processed in less time with greater accuracy. EDI data transfer reduces errors (PDF, 669 KB) through rigid standardization, which helps to ensure information and data are correctly formatted before they enter business processes or applications. EDI integration improves traceability and reporting because electronic documents can be integrated with a range of IT systems to support data collection, visibility and analysis. EDI automation supports positive customer experiences by enabling efficient transaction execution and prompt, reliable product and service delivery.
For large organizations, EDI enables standards to be instituted across trading partners to achieve benefits consistently. For smaller organizations, adherence to EDI offers greater integration with larger firms that have big budgets and strong influence.
EDI implementation
For some enterprises, EDI can be difficult to implement. One reason is the need to keep pace with shifting government regulations, standards and updates. It is also inherently complex, as it needs to accommodate the complexities of global business needs. For example, each trading partner in a B2B network can present individual requirements. Even though two partners may agree on which EDI document to use, each can have unique formatting requirements that need to be supported. These factors, and others, have led many organizations to outsource their EDI solutions. Whether in-house or outsourced, there are some basic conditions, capabilities and resources needed to implement EDI effectively, in addition to factors such as agreement on document types, secure transmission methods, and requisite hardware and software.
The future of EDI
Consider this scenario: a chargeback related to a damaged shipment is triggered using an EDI 214 document — a Transportation Carrier Shipment Status Message. The material in the shipment is unusable or unsaleable. Disputes will most likely arise based on the chargeback.
In future supply chains, EDI will be the core document exchange capability to support innovations such as the Internet of Things (IoT), blockchain and artificial intelligence (AI)³. Future EDI will use:
IoT sensors incorporated into a shipment‟s packaging and tied to periodic EDI 214 messages to improve package condition visibility in near real time.
Blockchain technology underpinning EDI information flows for shipments to offer a shared version of the truth that can quickly resolve and even avoid chargeback disputes.
An AI agent that monitors all relevant events and information connected to a shipment and can identify a non-compliant event. AI agents can also determine if a reshipment is required, analyze the most efficient source of replacement, initiate a new shipment and accept an authorized return.
CASE STUDY Business challenge story
Greenworks is a fast-growing leader in the battery-powered outdoor equipment market, manufacturing
products for both the homeowner and commercial markets. The company has recently experienced rapid growth in its European and Asian markets, establishing a strong global presence.
Thanks to its success, Greenworks faced the challenge of meeting higher global demand from two different market sectors, which meant tracking orders, service level agreements (SLAs) and even regulatory and legal requirements in multiple countries. The IT department, under the direction of Eric Doty, had initially managed these processes with the IBM Sterling B2B Integrator solution, but it was no longer sufficient for the task.
“The Sterling B2B Integrator is the industry workhorse,” says Doty. “The challenge is that it requires a staff of dedicated resources that, as a small company, we just don‟t have.” Greenworks could not support the staff necessary to maintain an always on, on-premises system like the Sterling B2B Integrator solution. “I can‟t afford to hire a database administrator, a systems architect and a cloud architect for one application,” states Doty. To compensate, the company had been using a variety of spreadsheet applications to track orders. But, according to Doty: “We have tight SLAs with a lot of our customers where, if we don't respond within a few hours, they may either cancel the order or fine us with a noncompliance charge. And we don't like when either of those things happen.”
Doty notes that he aims for a smarter supply chain, but Greenworks needed to start with the basics. “A smarter supply chain means knowing where our stuff is,” he says. “For us, first and foremost, it knows where our inventory sits and when it will be where we need it to be. Then how to get it to the end users.”
The company had massive amounts of order data that Doty, as an EDI expert, had to interpret for the customer service teams before they could provide answers to customers or track shipments effectively. He wanted to implement a solution that would provide better supply chain visibility across the business and operate day and night to support customers across the globe.
“You can find so many people that do EDI that it‟s nothing special. It's been around for 20 years,” says Doty of his search for a supply chain management solution. Greenworks wanted to find a solution that included a supply chain insight tool and an order management tool.
“I saw where IBM was going with the Watson platform and IBM Sterling Supply Chain Insights with Watson,” says Doty. “The message I kept hearing from IBM was that we needed to get onto IBM Sterling Supply Chain Business Network as the foundation for everything else.”
Transformation story
Greenworks chose the Sterling Supply Chain Business Network Premium platform with Business Transaction Intelligence capability, powered by IBM Watson®. The Sterling Supply Chain Business Network solution digitizes and automates B2B transactions. The Business Transaction Intelligence capability uses Watson™ AI technology to help Greenworks gain deeper insight into EDI processes using visual reports and queries in natural language. Now the company‟s business users have the insights needed to make faster and more informed decisions, without the intervention of the IT team.
“Until now, I‟ve had to know that an 850 is a purchase order that then produces an 856, which produces an 810,” says Doty. “I had to know all these things and how to read EDI. Now I can just tell my business users that if they want to find a purchase order, they can just type „Show me Amazon purchase order 123‟ and they can find it. It takes all the need for in-depth knowledge required out of EDI.”
Greenworks also selected the Sterling Supply Chain Business Network solution because it is designed for reliability and availability, so the company saw its potential to support its expanding business in China and Europe. Furthermore, because it is maintained in the cloud as a software as a service (SaaS) offering, if something goes wrong with the system, the burden is on IBM and not on Greenworks.
Greenworks added a document conversion services tool to its solution to eliminate the need for manual data entry for paper orders. Once scanned, these orders become like any other electronic order in the system.
Results story Smarter supply chain saves time, money
Sterling Supply Chain Business Network software supports the global availability and compliance with data laws across the globe, including China and Europe, that Greenworks needs. Its cloud-hosted architecture lets Greenworks be a global organization without having to staff a global IT team. And it saves considerable time and money for the company.
“Sterling Supply Chain Business Network lets us eliminate all the staff and infrastructure overhead and really focus on what we do, which is making power equipment. We‟re not an IT company. We don‟t want to be one,” states Doty.
Doty believes the solution will save the company almost 40 percent in upfront IT costs, even before considering labor savings from not maintaining the servers and databases itself.
He expects it to be a game changer for the company, because it puts the power and the tools to research orders in the hands of the customer service team. They no longer need to contact the EDI team and wait hours for the answer to a question or problem, whether it‟s an inquiry into a file location or whether a product was shipped or rejected.
“With Business Transaction Intelligence, we can really get to the heart of the problem quickly,” Doty says. “The biggest benefit to me is that the business users get to cut me out of the loop entirely, and I‟m alright with that.”
Greenworks expects the Sterling Document Conversion Services tool to save more than 160 hours a week in manual data entry. According to Doty: “A lot of our customers are smaller and still send us paper purchase orders. When we ran it out across our business globally, we were spending at least 160 hours a week entering in data. With the Sterling Document Conversion Services tool, we have the potential to free up our resources to do other things, to better support our business. In some cases, it's going to mean the difference between offices being profitable and not profitable.”
Doty concludes: “A smarter supply chain means knowing where your stuff is and how to get it to where it needs to go. And Sterling Supply Chain Business Network with BTI [Business Transaction Intelligence] puts the power of that deep visibility into our users' hands.”
Greenworks Tools
Greenworks is the leader in battery-powered outdoor power tools for DIY-consumers, landscapers and for commercial distribution. Founded in 2007, the company offers Greenworks-branded and private label products, as well as products for an extensive network of original equipment manufacturers. Greenworks is headquartered in Mooresville, North Carolina, and has European headquarters in Malmö, Sweden, which serves its rapidly growing European, Middle East and Asian markets. It employees more than 5,000 people worldwide.
